Jon Carnes of Eos Funds, who once made a fortune betting against Chinese companies, is now so bullish on China stocks that he is predicting that the Shanghai Composite Index will double by the end of 2016.

“I foresee a period of price consolidation lasting at least several months followed by a breakout to new highs that will ultimately lift the Shanghai Composite Index to between 7,000-8,000 over the next 18 months,” Carnes told MarketWatch.

Carnes was recently described by Bloomberg as a more effective short seller than Carson Block of Muddy Waters and David Einhorn of Greenlight Capital.

The Shanghai Composite
SHCOMP, +0.54%
closed at 3,795.90 on Monday, falling for its third consecutive session.

“I feel strongly in the potential of the market due to the tremendous volume of interest reflected in the unparalleled liquidity achieved in 2015,” he said.

But as worries about a stock market bubble mounted, authorities started taking steps to cool the market, including restricting margin trading and short sales.This in turn sparked panic sales in June, forcing further government measures to stabilize the market.

“[Investors] are discovering, for the first time, the Chinese version of the ‘Greenspan put.’ Like Alan Greenspan in the 1990s, the Chinese government has now shown that it will drastically intervene to support the stock market,” he said.

And the faith that the government will never let the market collapse will attract more speculators going forward.

“I know a lot of native Chinese investors. They all fully understand that their markets are speculative, that fundamentals don’t really matter, and that investing in Chinese stocks is akin to gambling. They only seek to ‘go with the herd,’ following the trend in the market and constantly gauge the level of government support and initiatives,” he said.

If all else fails, Beijing will devalue the yuan as a last resort and that in turn will “set the stock market on fire.”

“When the bull market resumes later this year, many new Chinese investors will start buying, feeling secure in the knowledge that their government will not let them lose (much) money.”

Carnes, who used to issue his short calls on Chinese companies under the pseudonym Alfred Little, currently does not have any China-specific stock recommendations but plans on going bargain hunting over the next several months.

As for his experience as a China-focused short seller, Carnes sees little chance of success for any investor going against China.

“Chinese securities regulators will continue to limit and or threaten short sellers with jail time whenever necessary to show their ‘support’ for the market, and to bolster the public’s admiration of the regulators’ authority as the protector of the investing masses,” he said.

Carnes’s last negative report on a Chinese company was in 2013 when he called FAB Universal a fraud.

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